Hovnanian reports an unexpected third quarter profit

Patrick Fallon/BloombergHovnanian reports a profit in third quarter earnings.

Hovnanian, the largest homebuilder in New Jersey, reported an unexpected profit for its fiscal third quarter as orders jumped and it recorded a tax benefit.

Net income for the three months ended July 31 was $34.7 million, or 25 cents a share, compared with a net loss of $50.9 million, or 47 cents, a year earlier, the Red Bank-based company said today in a statement. The results included the reversal of $37 million of state tax reserves. The average estimate of 10 analysts in a Bloomberg survey was for a loss of 14 cents a share.

Hovnanian, which has the second-best performing homebuilder stock this year, has been purchasing land at distressed prices in an attempt to boost profit margins.

The “strategy of opening new, better-located communities is driving sales and generating greater operating leverage,” David Goldberg, an analyst with UBS AG in New York, said yesterday in a note to clients.

Homebuilders are increasing prices in markets where shortages of existing properties listed for sale are driving buyers to new construction. New-home purchases rose 3.6 percent in July to a 372,000 annual pace, matching a two-year high, figures from the Commerce Department showed last month.

Hovnanian’s net contracts for the quarter increased 19 percent from a year earlier to 1,541 homes, the company said. Revenue jumped 36 percent to $387 million. Its contract backlog, an indication of future sales, rose 41 percent from a year earlier to 2,452.

“We believe the housing market’s recent overall strength and our significantly improved sales pace this year indicates that the market for new homes has bounced off the bottom and is already in a period of gradual recovery,” Chief Executive Officer Ara Hovnanian said in the statement.

The stock more than doubled this year through yesterday, compared with a 69 percent gain for the 13-member Bloomberg Industries homebuilder index.Bloomberg